Small potatoes in the free market

Michael Kinsley (The great free market fraud, November 21) might find an answer to his question more readily by starting from the premise that every big company is a conspiracy against the public. The directors and managers of these companies may not have identical sets of objectives, but they are all motivated by the acquisition of power, profits and prestige. And the acquisition of these three Ps depends on their ability to milk revenue net of costs from their customers.

However, private equity and investment funds which are focused solely on profits (ie risk and returns) may be able to milk the net revenue more efficiently. As a result, they will often pay a premium to secure the net revenue. This is the "power and prestige" premium that customers pay publicly quoted companies, but it is not reflected in their market capitalisation. For example, this premium may allow big companies to sustain difficult-to-justify conglomerates of heterogeneous business activities.

Rather than excoriating private equity and investments funds, they should be applauded for their single-minded search for value and their ability to capture it. The existence of the threat of a private equity buyout provides an incentive for the managers of big companies to up their game. If companies that get the private equity treatment are subsequently returned to the market, more often than not, they are more efficient businesses. This, ultimately, is in the public interest.

The role of government is to ensure that regulation, the protection of workers and competition law are sufficient to contain the conspiracy against the public but do not suppress Keynes's "animal spirits".Paul Hunt Haywards Heath, West Sussex

Of course the free market is a fraud. All it can be guaranteed to do is put up land and property prices, leaving consumers too skint after rent or mortgage payments to buy anything else. To be fair to Milton Friedman, he did realise this was an issue and that somebody had already thought it out. He wrote: "The least bad tax is the property tax on the unimproved value of land - the Henry George argument of many, many years ago."DBC Reed Thorplands, Northampton

Capitalism may not be so good at setting the value of big companies, as Michael Kinsley claims, but it is definitely not fine for pricing potatoes. Has he forgotten that farmers have ploughed part of a good crop into the ground to avoid a price crash that would have made it worthless? Would fixing a just price so that those allowed to sell in a market would bring their best potatoes first, and accepting that at the end of the season a surplus or shortage results be better? Adam Smith did not think so.George CA Talbot Watford